Cash, Cars and Contracts: IBM, HP and Oracle in the Crosshairs of Overseas Corruption Investigation

Three American companies are cooperating with a Polish investigation into how the companies won lucrative contracts to upgrade Poland's technology

In the buttoned-down world of government officials who oversee computer contracts, Poland’s Andrzej Machnacz cut a colorful figure. He enjoyed fine cigars and tooled around Warsaw on a motorcycle. Salesmen beat a path to his office, where the big-screen television was usually tuned to the fashion channel.

"Andrzej liked to look at pretty girls," one frequent visitor recalled. "There always had to be cigars and good alcohol in his office, mainly well-aged whisky."

Computer sales executives for local companies and global giants like IBM and Hewlett-Packard had good reason to cultivate Machnacz. As senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, he set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.

Today, Polish prosecutors have painted a damning portrait of the partnership between the colorful Machnacz and the eager salesmen, one that could have legal consequences for the American companies, including IBM, Hewlett-Packard and Oracle, the Redwood City, Calif. software company.

Machnacz, prosecutors say, received more than a $1 million in cash and brand-name gifts in exchange for steering government contracts to the three American companies, as well as to a Polish company called Netline. According to prosecutors, the gifts included a BMW motorcycle, a Nissan SUV, a Harmon Kardon home theater, a Sony 50 inch television, 12 HP laptops, several iPads and a refrigerator.

The bribing of overseas officials is barred under the U.S. Foreign Corrupt Practices Act, and as ProPublica has previously reported, the Justice Department and Securities and Exchange Commission have stepped up enforcement of that statute in recent years. It is unclear whether federal investigators in the U.S. have begun looking at the circumstances of the Polish technology contracts.

IBM and Hewlett-Packard said in statements that they were cooperating with Polish authorities. Hewlett-Packard noted that "no current HP employees are suspects in this case," while IBM pointed out that "press reports” on the case referred to a "former IBM employee." The company said in its statement that it "believes in the highest ethical standards for its employees and is committed to the principles of business ethics and lawful conduct."

Oracle, whose possible entanglement in the investigation had not been publicly known before today, would not comment for this article.

The first reports about the investigation by Polish news outfits surfaced more than a year ago, named IBM and HP, and did not make much of a splash. A report last week by Robert Socha of Poland’s TVN television network brought to light new details. (Watch a version with English subtitles here)

The TVN report included footage of a Polish business executive describing the elaborate steps Machnacz would often take in order to do business in secret. The executive, whose face was obscured on camera, was not identified by name but was described as a former employee of Netline, the Polish company implicated in the case.

"I followed him in my car," the executive said of Machnacz. "Sometimes, he would go to great lengths to show how ingenious and great he was, and how he could lead all the agencies by the nose. We would meet, I would follow him by car, he would ride a motorcycle, making a show to check that we were not followed. I got to know all the underground stations, as very often we would meet at a different one."

The employee said he first met Machnacz at a conference in the United States that he’d been invited to by an IBM executive in Poland.

A spokesman for Poland’s Anti-Corruption Bureau, which has been investigating the case, told TVN and ProPublica his agency had so far been less than impressed with level of cooperation from the three American companies.

In an email to ProPublica, Jacek Dobrzynski said the companies had responded to requests for documents. But asked directly about the attitude displayed by HP, IBM and Oracle, he said had not seen "any initiative, any willingness" from them to "solve this case completely.”

"I think they should be the parties most interested in that," Dobrzynski said.

Machnacz’s lawyer did not respond to a request for comment. Prosecutors have announced that Machnacz has been released from prison and has agreed to cooperate and testify against others involved in the scheme.

Prosecutors have not specified which exact contracts were influenced by the alleged bribery. Polish officials say as many as 140 computer deals amounting to more than $500 million may have been tainted. Poland does not publish details of its government contracts.

The former Netline official said the technology systems bought by Machnacz were too expensive and sophisticated for the country’s needs. "Because of the rapid pace of change in the technology field, the technology Machnacz had purchased still needed to be updated every several years.

"It was like we built brand new highways and rode horse carts on them," the former Netline executive said. "It was money wasting.”

IBM went some lengths to tout its successful collaboration with Machnacz, featuring a Polish project in a glossy 2009 brochure that spotlighted 16 innovative technology efforts around the world. The brochure included a glowing account of how IBM had worked with Machnacz to create a network of handheld computers that gave Poland’s police instant access to a vast array of data. With a few key strokes, cops could learn whether they were dealing with a stolen car or a wanted man, the brochure said.

The portable computers "practically eliminates errors and incorrect information," the brochure quoted Machnacz as saying. Marcin Figiel, the IBM sales executive in Poland with whom Machnacz worked, proudly asserted that no other country in Europe had deployed such an advanced network.

Prosecutors said that Figiel gave Machnacz nearly $60,000 in brand-name consumer products. Figiel no longer works for IBM; his lawyer did not respond to requests for comment.

Tomasz Ziolkowski, a salesman for HP, was alleged to have given Machnacz more than $600,000 in cash gifts "in exchange for helping Hewlett Packard Poland and Oracle obtain public contracts with the police and Interior Ministry." According to his profile on LinkedIn, Ziolkowski left HP in February 2010 for a job with Oracle’s Polish operation as a "consulting sales director." The profile says he left Oracle in July 2011; his lawyer also did not reply to a request for comment.

The U.S. anti-bribery statute holds companies legally liable for bribes or payments by foreign employees, even if they acted without authorization from their employers in the U.S., according to Mike Koehler, a professor at Southern Illinois University School of Law and author of the blog FCPA professor .

IBM, Oracle and Hewlett-Packard have not publicly disclosed the case in their filings to the Securities and Exchange Commission. That decision likely reflects a judgment that the Polish inquiry will not affect the companies’ bottom lines or change investors’ views of their stock, experts said.

Hewlett-Packard and IBM have been investigated for bribery in government contracts in other countries.

In April 2010, Hewlett-Packard disclosed that the Department of Justice, the S.E.C. and German prosecutors were investigating nearly $10 million in suspect payments related to a $45 million contract for a computer system bought by Russia’s chief public prosecutor. U.S. authorities were also looking at separate transactions in Serbia, Austria, Germany, Austria and the Netherlands, the company said.

A year later, the S.E.C. sued IBM in federal court in Washington, D.C., alleging that the company had provided shopping bags full of cash, gifts and travel expenses to officials in South Korea and China to secure computer contracts. The S.E.C. contended that "despite its extensive international operations, IBM lacked sufficient internal controls designed to prevent or detect these violations of the F.C.P.A.," the anti-bribery law.

"During the period 1998 to 2009,” the complaint said, "IBM had corporate policies prohibiting bribery and procedures relating to compliance with the FCPA; however, deficient internal controls allowed employees of IBM's subsidiaries and joint venture to use local business partners and travel agencies as conduits for bribes or other improper payments to South Korean and Chinese government officials over long periods of time."

The complaint accused the company of violating the provision of overseas bribery the law requiring it to keep accurate records and maintain "internal controls” to prevent payment of bribes.

The S.E.C. and IBM had agreed to settle the case for $10 million, but Richard Leon, the federal judge overseeing the S.E.C.’s action, recently refused to approve that deal. The case is still pending.

Robert Socha is a reporter with Poland TVN network.





5 years ago

I was beaten time and again by IBM for contracts where IBM was entirely unsuitable and DEC (VAX-VMS) was the obvious choice when I represented DEC in Education, Scientific, Engineering and R&D projects with the Government of India ( Indian Institute of Science was the sole exception, IITs and DRDO / CSIR convoluted themselves around IBM Cobol and Fortran. Not surprising that IITs sent chaps into IIM and business rather than into technology?). There was this IBM NRI guy based in Singapore who knew exactly who had to paid, how much. DEC didn't pay, and the commission evidently was not adequate to share with the buyers to mutual satisfaction for DEC's agents (Hinditron) in India.

Oil ministry to approach EGoM for prioritising gas supply to power sector

Association of Power Producers director general Ashok Khurana said about 24,000 MW of gas-based power plants are stranded due to gas shortage, adding that the power sector too was a priority sector and needs to be accorded same status as fertiliser

With power plants, involving investments of Rs1,00,000 crore facing closure due to shortage of natural gas, oil minister M Veerappa Moily on Wednesday said he will move a note for the consideration of high-powered ministerial group to change priority of allocation of the fuel as well as pooling price of imported and domestic gas.


The Empowered Group of Ministers (EGoM) had previously accorded top priority to urea-manufacturing fertiliser plants for receipt of natural gas from Reliance Industries’ (RIL) eastern offshore KG-D6 fields. LPG extraction units were placed second on the list and power plants were given third priority.


This priority list essentially meant that when KG-D6 output started to fall, requirement of top priority customers in the fertiliser and LPG sectors was first met and remaining gas was pro-rata supplied to power plants.


With KG-D6 output falling to about 17 million metric standard cubic meters per day (mmscmd) this month, there is no gas now left for power plants after meeting requirement of fertiliser and LPG sector.


Heads of leading private power producers including Anil Ambani of Reliance Power, GM Rao of GMR Group, G V K Reddy of GVK Group and Madhusudhan Rao of Lanco, first met Moily and the Planning Commission deputy chairman Montek Singh Ahluwalia to state that 15,000 MW of gas-based plants are getting gas supplies from domestic fields at less than 10% of their operating capacity, making their operations unsustainable and unviable. In addition, 8700 MW of new gas-based capacities are stranded with no gas available for commissioning of their plants. Moily said the power producers suggested according power and fertiliser equal priority so that the current available gas is equally distributed among them.


Also, they suggested averaging the price of domestic gas with costlier imported gas to make fuel affordable for power plants. They also wanted augmenting the domestic supply by diverting 6 mmscmd of gas being supplied to non-core sector and reserving the new finds totalling 10 mmscmd for the power sector.


“Our ministry has to go by the decision of the EGoM regarding allocation and priority for supply of gas. One way to change the same is to convene a meeting of EGoM. I have agreed to convene the EGoM meeting to consider the issues raised by them,” he told reporters after the meeting.


Association of Power Producers director general Ashok Khurana said about 24,000 MW of gas-based power plants are stranded due to gas shortage. Khurana, who was part of the delegation that met Moily, said the power sector too was a priority sector and needs to be accorded same status as fertiliser.


More than two dozen power plants were allocated over 30 mmscmd of gas from KG-D6. These plants faced pro-rata cut in supplies when KG-D6 production started to dip in second half of 2010.


Another PPP model sees red but RTI empowers waste pickers to fight for their rights

RTI documents procured by activists reveal that the high-profile BVG Kshitij engaged in collection and disposal of municipal solid waste management in the Pimpri-Chinchwad Municipal Corporation, has manipulated attendance records of waste pickers for paying lower wages

BVG Kshitij Waste Management Services Pvt Ltd has been hired by the Pimpri-Chinchwad Municipal Corporation (PCMC) to carry out the work of door-to-door collection, segregation and transportation of municipal solid waste in its B and C wards for a period of five years from January 2012 to December 2016. The company employs waste pickers affiliated to the local NGO, Kagad Kach Patra Kashtakari Panchayat (KKPKP).


As per the rules for sweepers and scavengers and belled cart workmen in municipal corporation limits, the daily wage structure is: 1 July 2012 to 31 December 2012: Rs240.52 per day (Rs6,253.75 per month); 1 January 2013 to 30 June 2013: Rs 254.06 per day (Rs6,605.50 per month). Besides these minimum wages, they are entitled to statutory benefits like House Rent Allowance @ 5% of their minimum wages, as well as employer’s PF and ESI contribution @ 12% of minimum wages and 4.75% of gross wages, respectively.


The waste collection work in Wards B and C is to be undertaken with deployment of 313 helpers on the waste collection vehicles, each of them operating for 30 or 31 days per month. “Hence, the total number of worker days required for B and C wards as per the agreement is 9,390 and 9,703 respectively”, states Lakshmi Narayan, general secretary of KKPKP.

However, since the last four months, KKPKP has repeatedly brought to the notice of the PCMC authorities that workers under the waste collection contractors in PCMC were being paid wages between Rs50 and Rs100 per day instead of Rs254 stipulated under the Minimum Wages Act. While the PCMC attendance records maintained at the ward level shows that workers are being paid the right amount of Rs254 per day, the worker days attendance and wage register maintained by BVG showed a major discrepancy. In the sample taken by the labour department of 70 workers, the record showed that while all of them had worked between 28 to 30 or 31 days as per the PCMC record, the BVG record showed that they worked only between 11-18 days. Salaries were given as per the BVG record which therefore came to around an abysmal Rs50 to Rs100 per day.


To further prove this discrepancy by BVG, the KKPKP invoked the Right to Information (RTI) Act. A sample of three months’ attendance/ operation record procured by Moneylife from KKPKP shows that in April 2012, the PCMC attendance record is 7,674 worker days whereas BVG records show it as 4,780 worker days. In May 2012, PCMC records attendance of 7,903 workers days for the month as per its wage records while BVG’s document shows 4,759. In August 2012, the PCMC records attendance of 8,312 worker days as per its daily attendance/operation records while BVG’s documents shows only 4,739.


Harshad Barde, member of KKPKP is the one who has systematically and painstakingly collated information under the RTI Act. Explaining how BVG managed to fudge the records, Barde states, “The attendance records kept by PCMC show very low absenteeism of workers. But the records maintained for payment of minimum wages to the workers under the Minimum Wages Act show much lower worker attendance. The discrepancy between the two attendance records is around 4,000 man days of work per month for around 14 months. The actual payment to workers has been done on the basis of falsified attendance records showing that each of them has worked for around 10-12 days per month to make the wages correspond, while they have actually worked for a full month.”

Narayan states that, “Preliminary calculations reveal that the discrepancy in payment made to all wastepickers for the past 14 months will be to the tune of Rs3,20,00,000. This does not include the amounts rightfully due to drivers and other employees of the contractors. The wages calculated as per actual days of work attended are as low as Rs30 for an eight-hour work day.”


KKPKP brought this matter to the notice of the Labour Department, Pune, which corroborated the complaints in its Inspection carried out on 22 February 2013. In the presence of the Labour Inspector, PCMC authorities committed to withholding payment to BVG Kshitij till they verified the actual wages paid out to the workers, says Narayan.


Ratnadeep Hendre, Additional Labour Commissioner, observed that the PCMC being the principal employer, should look into the matter of ensuring due payments to workers and that claims should be filed by all waste pickers for unpaid dues since 1 January 2012.  The PCMC though has yet to take any action.


Informs Narayan about the labour department’s inspection, “Attendance records maintained by the PCMC at the ward level for the month of February were compared with the wage register of the BVG and the attendance records of workers purported there. This was done in the presence of officials from the Health Department and the Labour Department of the PCMC. The discrepancies are glaring. Information compiled for 70 workers (data for all wards was not available) show discrepancies of between 10 and 23 days in a 28 day month per worker with an amount of between Rs2,500 and Rs5,800 owed to each of them for just the month of February!”

With the PCMC mum on this matter, over 150 waste pickers of KKPKP peacefully protested against this injustice early this week. It has made the following demands to the PCMC:

  1. Workers be paid the difference in wages paid to them and those that are statutorily due to them for the month of February, before the 31 March 2013.
  2. Workers claim forms for: a. Payment of the difference in wages paid to them and those that were statutorily due to them for the period between January 2012 and January 2013, b. Payment for House Rental Allowance in respect of such difference in payment, c. Employers and Employees Contribution for EPF and ESI in respect of such difference in payment, should be settled before 31 May 2013, along with interest and  compensation in the nature of punitive damages. 
  3. Wage Slip- cum-Daily Attendance cards and protective gear be issued to workers immediately and regularly. 
  4. All future payments to contractors should be made contingent upon verification of payments to workers, in presence of an appointed PCMC official, against attendance records maintained by the PCMC and attendance cards issued to the workers. 
  5. All payments should be made to bank accounts as mandated by law and not through Pay Direct Cards. 
  6. Workers should be allowed paid weekly days of rest as required under the Minimum Wages Act.
  7. Workers should be allowed paid national/state/local holidays as required under the Contract Labour Act. 
  8. No worker should be terminated without justification and show-cause notice as is mandated by the Contract Labour Act.
  9. Future contracts involving labour should have stricter monitoring and enforcement systems for ensuring compliance of labour laws by contractors, as also severe penal clauses leading to termination, blacklisting, punitive damages/compensation, etc. for such non-compliance.

    (Vinita Deshmukh is the consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)




5 years ago

This person is lucky enogh to get all required information and enogh courage to exploit but there are numbers of applications are pending with commissioner./congratulations

nagesh kini

5 years ago

Very appropriately put down Vinita.
In Mumbai we have Clean Up! This also needs to be looked into.
It is unfortunate that in the name of PPP poor rag pickers are exploited.
The Municipal Corporations whose Inspectors go round collecting haftas in the name of enforcing the Minimum Wages and Payment of Wages Act ought to pay attention to what is going on in their own back yard.
The PMC should initiate action under the Minimum Wages Act without delay.


5 years ago

All should now shed the wrong doings, really good work ML team for bringing it in public domain.

shailesh gandhi

5 years ago

Great work using RTI again. Congratulations

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